This episode dissects a Northern Tennessee rural subdivide proposal for 10-20 child parcels from a 45-acre tract, revealing how the investor’s $13-18K per acre projection crashed to a conservative $5-6K assessment due to hilly terrain, wetland creeks, adverse selection factors, and market weakness following early April 2025. The analysis demonstrates why subdivide failures can kill businesses in a single deal and why most submitted proposals lack proper data-driven rigor.
Key Takeaways:
- Price Per Acre Becomes Useless Below 2-2.5 Acres Smaller parcels require price-per-parcel analysis based on characteristics rather than acreage, a mistake that cost the most money ever lost on a single deal.
- 12-Month Comps Are Dangerously Outdated In Current Markets Recent 2-3 month sold/pending data after early April 2025 provides the only reliable pricing signal, as mini-boom conditions from late 2024 through early 2025 no longer reflect current demand.
- Draw Child Parcel Maps Before Presenting Deals Submitting subdivide proposals without visual parcel layouts forces funders to make incorrect assumptions about adverse selection, access patterns, and total development costs.
Listen to the full episode for the complete conservative subdivide underwriting framework.
(Podcast transcript below)
Hi, welcome to Get Serious, another update on just subdivide guidelines, specifically minor subdivides. I feel like I can talk about this topic almost every other day until I’m blue in the face. And that probably still isn’t enough to get some of these points across on just how conservative and data-driven your analysis needs to be before
considering investing in any minor subdivide potential project or presenting it to a funder because, you know, the handful of ones that are actually well thought out are a distant minority to say the least, at least the ones sent over to us. And, you know, again, I know I’ve been talking and writing a lot about, you know, it’s difficult market, you know, not just me saying this.
You know, the industry is in a tougher spot, the higher interest rates, real estate in general, we’re in more of a down cycle, especially in most areas of the country. And so you just got to be more cautious. That doesn’t mean you can’t succeed. Again, we’re about to have our most profitable month ever in the history of our business this July here. But you know, it’s been a rough road to also get here recently and, you know, we’re still operating.
in a more conservative mindset, resetting growth expectations over the next year and a half or so in order to thrive even more going forward. So it’s a whole nother conversation, but that serves as a helpful backdrop that you can’t just be willy-nilly kind of trying to figure out some of these subdivides and…
This is even more the case because whenever you undertake a particular subdivide, you’re going to run into potential extra time on market, general higher cost for the deal in and of itself, adverse selection for lots that might not be as interesting to buyers.
you know, based on certain characteristics of the underlying terrain. you know, all of these factors can really come into play that just, you know, can really affect your exit projection. So, again, I know I’ve talked about this a lot. It’s just, it bears worth repeating, again, constantly. And so, you know, just to serve up another example, I was reviewing this deal that
What state was this in? This was in Northern Tennessee, very rural area. And I’ve struggled in Tennessee recently. So I’m even more wary. Plus again, it’s another COVID boom state that has faced a retraction in home values and steadily decreasing demand at the moment. So if you’re gonna, like this particular project, they were considering doing 10 to 20, 20 plus.
you know, two acre child parcels off of a roughly…
45 ish acre parent tract, but the train was all over the place first. It was like a very rural You know, like I said, you know rural part of the state There was a lot of just hilly terrain some of the parts of the parcel just had you know near valleys and Cravasses that had you know, wetland creeks running through it unclear if there was even viable bill build ability
in order to do that number of child parcels you were probably gonna have to install some type of easement road situation To give everybody access and then that’s another thing I asked you like you’re gonna send something over to funner like get You know really think through the child parcel map draw it out. It doesn’t need to be perfect Just throw some lines up on there. So then you know, I’m not necessarily making
Incorrect assumptions. I can’t tell you how many times it’s happened when people like yeah I want to do you know, three or four split child parcel and But don’t supply that extra info and so I have to kind of guess and then they come back say well No, actually I was thinking about doing this way and it just changes the equation a lot more so you know again just like come prepared at least have an idea on what it’s What it’s going to take and what the design actually looks like so then I can assess that you know
adverse selection potential, as well as like what other costs might go into handling the subdivide and you know, what county regulations are there and costs and survey costs, do we need to get per test and all of them, like all of that, it has to be factored into the deal at hand as well. And then again, everything really comes back to the market, comping continues to be
Difficult skill something, you know, we’re we’re always trying to get better at and trying to build a tool around obviously with with land price or to do this more reliably In and this is only like reinforce the fact that it’s just I you know people view I think comps in to Rosie of projections, especially for subdivides like you might get a sense. you know there you can just do a you know overall price per acre
breakdown or even use some of those more automated tools, you can just look at, okay, you know, I have a whole bunch of comps in the hill area. has similar contour. Um, but you don’t actually know the nuance of the counter that, that, that, that’s the thing. Like, you know, if you’re just using some of those pure AI mapping and just like, oh, you know, it’s like 25 % steep contour, but you don’t know where that steepness is, right? Like, does it affect the more buildable area versus not? Um, like that nuance is very important. How close to the road frontage is it?
Same with like floodplain and wetlands like so what if it’s know, 20 25 % flood zone, where is that flood zone? Like that that needs to be determined Which you know, you really need to put eyes, know aerial eyes through through mapping in order to fully tell what The actual characteristics are for some of these comps in relation to the subject properties and again the line market changes
very rapidly, especially over like the last eight months or so, know, the mini boom market end of last year, heading into this year, and then it got a lot tougher. You know, especially after, you know, early April of 2025. There’s oftentimes a lot more of kind of a depression on pricing after that particular date or roundabouts or just less activity in general, not everywhere.
But in many areas that we’ve looked at, that has been the case since you really have to compare, okay, your price per acre of the last few months that have closed, or really last couple months, accounting for pending time for properties that went under contract after early April. And then a lot of people will use last 12 month comps. get a lot of activity in late 2024 and so forth, and it’s just not as relevant as it is now.
Plus again, some of these characteristics of these other properties are just much better. You know, they might’ve already had septic installed on the property. You might’ve already had a home clearing. Like you have to take this into account for the price per acre that you’re considering for these properties. And again, this was like right at the borderline for where price per acre is even useful. Like anything below two acres, maybe two and a half acres.
Throw out price breaker entirely like it just becomes a price per parcel instead They have to judge more by characteristics instead of sizing like I’ve made that mistake and lost money Probably the most money I’ve ever lost on the deal By not hewing to that You know fact of the market. So like don’t make that mistake You can probably feel the pain in my voice from from from that
Standpoint and there’s that you know a smaller property in Tennessee that we’re still struggling with gonna take a loss on Because because we screwed up that That part of our analysis as well So like you have to blend all of this together and really assess, you know Also like have there been other minor subdivides that have sold in the area Are they actually like pushing through the market and like what are their characteristics similar to yours?
You know, how long did it take to move through the market? Are there they still active and then You know when you take into account all of this and you realize okay I’m gonna be bringing a whole bunch of inventory That’s all relatively similar or I’m gonna have to fight against adverse selection like some of these that are super hilly with maybe creeks in them I’m gonna have to undercut my anticipated price per acre even more. So You know, you’re always gonna want to undercut
whatever the market is moving at too, especially if you’re seeing, you know, comps that are moving north of 120, 150 days or so. Like if you’re actually trying to move a whole bunch of inventory, you’re really going to have to depress the price down to get things to move, especially if you don’t have that many superior characteristics. So, you know, in this particular property that we were looking at, you know, the investor is like, yeah, you know, looking at the market, seems.
And things can be going anywhere from like 13 to 18K per acre within this area for this type of sizing. But when I looked at it and my assistant looked at it and really undercutting the market and trying to figure out, what would it take to actually get these properties to move and account for all this adverse selection? It was probably closer to five to six K per acre on that. So like a huge difference over two X difference that we’re just being more conservative on. And obviously we feel very strongly.
and have the experience backing our assessments from that perspective. Because, know, minor subdivide, like they’re, they are tough again, and especially you gotta be working with the macro. Like if you’re going to be doing it in these States that are already feeling the pressure from too much inventory, especially from a residential side and, you know, land that is oriented towards infill and trying to get some builders to act on it. Or people like buy for vacation homes or summer homes or whatever.
or winter homes, I guess, being in the South or the West, you’re going to have to take into account that just reduced demand in general, plus a lot of underlying weakness within the economy that also has to be addressed. So definitely can still find solid deals out there. It’s just got to be smart about.
How to assess these things so we’re trying to educate as many people as possible again, I could probably repeat this message on my podcast almost every single day and it might it might improve the industry’s Ability to solve this by like, know 1 % I would still call that a victory here Yeah, I’d rather keep a diversity of topics but you know because so many people try to focus on these deals and we try to do more of them to they’re exciting There’s a lot of potential in them if you do them, right?
but you gotta be conservative and careful with your assessments. Cause if you blow up a minor subdivide, like that can just kill your business. One fatal swoop, especially in this market. So just be careful out there. With that in mind, SeriousLand.Capital for any of your funding needs, Land Daily Delegates Facebook groups, your cost review of your land deals, and LandPricer.AI most reliable land pricing tool on the market. Looking forward to talking to you next time. Take care, bye.
